My economics professor today brought up an interesting point today when talking about the aspect of the health care bill than bans insurance companies from discriminating against a preexisting condition. I'm not an expert and am curious if you agree with his argument or if there is something missing.

HIs basic argument was that people purchase health insurance in case something happens to them they will have it. Currently, if you do not have insurance and you get sick it becomes difficult to suddenly purchase a plan. If insurance can simply be bought at any time, what is the incentive to purchase insurance if you are healthy? If this assumption is correct, won't that make plans become more expensive since more and more of the people purchasing plan will be the sick?

I guess a penalty can fix this a little bit but if a plan costs $10,000 and the penalty is only $2,000 is still does not make too much economic sense.

I certainly agree with the virtue of not discriminating against the sick, after all these people need it the most. I'm just wondering what the economic implications of the policy generally tend to be.

DropItLikeItsHot, that's the justification for the individual mandate. If we just got rid of denials based on pre-existing conditions nobody would buy insurance until they were already sick. An individual mandate means nobody can be turned away due to medical illness because everyone is required to have insurance even when they're healthy. It's the young and healthy subsidizing the old and sick, but that's really the way insurance is supposed to work anyway.

Now, it's much more complex than just the individual mandate and the pre-existing condition issue, but I won't get into that. Suffice to say that the individual mandate is the missing piece to the puzzle your professor was talking about.

MosBen thank you for your reply. I understand that the logic behind the individual mandate. An individual mandate would help obviously but that does not guarantee that everyone will buy insurance unless the fee was large enough for people to pay it.

If a plan costs $10,000, and the penalty (by refusing the individual mandate) is only $2,000 people might be willing to just pay the penalty. Do we know how large the penalty is? I think if it is somewhere near $8,000+ some might just go ahead and purchase the plan, but unless the penalty is near the price of a plan will it be effective?